EU's Rehn turns deficit screw on Spanish regions

(STRASBOURG) - Top EU finance official Olli Rehn urged Spain on Wednesday to rein in spending by the country's autonomous regions that he said were responsible for major fiscal slippage.

Rehn said a 2.5-percent slide from the deficit target previously agreed with the European Union for 2011 was equivalent to a 25-billion-euro ($33-billion) budget shortfall, and that "this slippage came mainly from the regional governments."

"It is essential that Spain will as part of its reform efforts concretely ensure better sustainability of public finances of the autonomous regions," Rehn told the European Parliament during a debate on the eurozone economy.

"I have recommended to the Spanish government that they would already start applying (the) new fiscal sustainability law on the autonomous regions without any delay, because that is clearly an area that creates uncertainty and reduces the credibility of the public finances in Spain," he said.

Rehn was referring to a draft budget law intended to toughen oversight of the semi-independent territories after 2020 which it is hoped will be voted through by lawmakers before the end of June.

Spain's 17 "autonomias" are this year under pressure to bring their collective public deficit down from 2.94 percent of gross domestic product to 1.5 percent of output.

A government source has said precise figures are due to be presented by May, and that if these do not fit nation-wide targets, Madrid will impose its own decisions.

Some of the self-governing territories that make up the Spanish kingdom are pushing for full fiscal autonomy and have considerable independence movements.

Rehn's European Commission expects Spain -- under recent EU law-changes -- to deliver detailed spending plans for 2012 for vetting by peers before April is out.

Euro currency partners gave Madrid leeway to stretch its prior deficit target for 2012 to 5.3 percent, acknowledging what Rehn said were "formidable" local challenges "following the bursting of the credit boom and the real estate bubble."